Overall costs of the subsidy, including taxes on existing businesses, must be considered

MIDLAND - As supporters gathered at the State Capitol today to advocate the extension of the Michigan Film Incentive, Mackinac Center Fiscal Policy Director Michael D. LaFaive called on Lansing policymakers to demand a more rigorous analysis of the subsidy's net economic impact. The program offers refundable tax credits worth up to 42 percent of expenditures made in Michigan by film production companies and is expected to yield tax credits of $100 million or more this year.

LaFaive pointed out that claims about the incentive's economic merits fail to properly factor in the costs. He recently authored a Policy Brief titled "Special Effects: Flawed Report on Film Incentive Provides Distorted Lens," which analyzes a study of the incentive by Michigan State University consultants hired by the Michigan Economic Development Corp. The MSU economists erred, LaFaive said, when they excluded the costs associated with the incentive and issued a press release proclaiming the program to be a "big-time hit."

"It is conceivable that programming the actual costs of this subsidy into the economic model (known as REMI) would show that the Michigan Film Incentive destroys more jobs than it creates," said LaFaive, who has used the model and studied it at REMI headquarters in Massachusetts. "The revenue has to come from somewhere. In this instance, it is reasonable to conclude that it is coming from existing Michigan businesses that have been paying the new Michigan business tax and its related surcharge. As much as $48 million was taken from businesses in 2008 to subsidize filmmakers, and this has probably destroyed more jobs than it could have hoped to create."

In the face of extreme budget pressures, Lansing politicians have openly discussed reducing the value of the incentives offered to moviemakers. The very talk of limiting subsidies to this narrow business interest has rattled supporters of the incentive.

Mackinac Center analysts have repeatedly highlighted examples where the Michigan Film Office, which oversees the incentive, and the MEDC, which oversees the Film Office, have lacked transparency. Five months ago, the Center issued a statement pointing out that the Film Office violated state law and the spirit of Sunshine Week by omitting legally mandated data in a report to the Legislature.

"One might think if the Film Office knew it were truly successful, it would not only have published in a timely way information required by the Legislature, but would be leading the charge to have the economic impact study of the program recast properly to include all of the expected benefits and costs," said LaFaive.

Mackinac Center Communications Specialist Kathy Hoekstra has produced four video stories about the subsidy program. They can be watched here.